Greece must take bitter pill like Portugal, economy minister says

Portugal went through years of tough austerity which is now bearing fruit and Greece too must abide by its commitments to its single currency partners and creditors, Portugal’s economy minister told the Reuters Euro Zone Summit.

Antonio Pires de Lima ruled out any kind of debt renegotiation for Greece, saying Athens had to play by the rules of the game established by euro members, especially considering the sacrifices made by fellow bailout country Portugal.

Greece’s debt crisis flared again this month after the new leftist-led government said it would roll back reforms imposed under its bailout and cease cooperation with the troika of international lenders after years of harsh austerity. That has put it on a collision course with its creditors.

Pires de Lima said that since Lisbon had opted for a route “which was not the easiest one” to recover credibility and return to growth, “that is also our attitude to the situation in other countries.

“Portugal did everything that was necessary to remove the atmosphere of suspicion surrounding the country, removing all the shadows, all the clouds, all the doubts,” he said in an interview late on Thursday.

At the height of Europe’s debt crisis, many analysts compared Portugal to Greece, suggesting the country would not stomach the pain of deep spending cuts, the biggest tax hikes in living memory and the sharpest recession since the 1970s.

However, Portugal exited its three-year 78-billion-euro bailout from the euro zone and IMF last year, when its economy also grew for the first time since the crisis started in 2010.

A center-right government under Prime Minister Pedro Passos Coelho enacted deep spending cuts, economic reforms and extensive privatizations without flinching. It was helped by the low level of protests and strikes, which set the Portuguese apart from countries like Greece and neighboring Spain.

Portugal must hold a general election by October and far-left parties inspired by Greece’s Syriza or Spain’s Podemos are barely making any inroads into support for the traditional center-right and center-left parties in opinion polls.

Pires de Lima said the economy was rebounding and he would not be surprised if growth reached 2 percent this year. The government’s official forecast is 1.5 percent and the European Commission raised its estimate this week to 1.6 percent growth.

Declining oil prices and the European Central Bank’s decision to buy government bonds on a large scale with printed money, which should boost liquidity in the economy, would both help spur growth this year, the minister said.

Investors who put their money into Portuguese government bonds “two years ago or last year have had very good returns,” he said. Yields have slumped in that time as investors bet on the country’s recovery from its bailout.

But the minister said Portugal was now entering a phase when it needs investors for its companies. “Portugal really needs capital to sustain the investment and growth strategies of its companies, especially middle- and small-size firms,” he said.

The recovery so far has been driven by strong growth in exports and returning consumer demand.

Pires de Lima said he was not concerned about any potential contagion from Greece to Portugal, pointing to Lisbon’s bond yields which are now trading near record lows.

“The project of the single currency is not at risk,” he said. “At the end of the day, Greece is master of its own destiny.”[Reuters]